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Private-equity players up the ante again

The new James Bond film out last week may have received splendid reviews, but it has also made Hugh Hendry of Eclectica Asset Management nervous.

James Bond movies have, he says, “an uncanny knack of mirroring reality.” Witness The World is Not Enough, which was released in 1999. It featured as its central character an anarchist terrorist seeking to wreak havoc on global capitalism. “Sound familiar?” asks Hendry.

Then look at this year’s release, Casino Royale. It is all about gambling (specifically poker) and could be said to be mirroring the high-stakes games being played out in markets around the world. Most investors are happily betting that the US economy will have a good 2007, that profits will keep rising and world share prices will do the same, despite the huge range of evidence to the contrary.

The derivative markets, where traders bet on the price of an underlying asset, have